Protecting Municipal Assets

The years of Prohibition brought about a tremendous change within the liquor industry and one such change was the establishment of municipal liquor stores, which were started after Prohibition ended as a means for cities to control the distribution of alcohol in their communities. Today, in the state of Minnesota, municipal liquor stores have proven to be a solid method of generating revenue for communities while simultaneously controlling the distribution of alcohol. To help oversee the municipal liquor industry throughout the state, the Minnesota Municipal Beverage Association (MMBA) was founded to “utilize a variety of tools and methods in order to educate MMBA members on current, future and past industry information, trends, strategies and events.”

Historically Speaking

As Gary Buysse, operations manager at Rogers Wines and Spirits in Rogers, MN (and MMBA board member) explains, after the repeal of the Volstead Act, municipalities throughout the state of Minnesota were searching for the next step that fit for their communities.

“Some saw privatization as the answer, some decided to retain the boycott of beverage alcohol in their communities and others saw government intervention as the best solution for the problem,” Buysee says. “Municipal liquor was formed as a control mechanism initially and didn’t evolve into a revenue generator until much later.” Municipal liquor operations can advertise, promote and price products like independently owned operators, but because of the control element, municipal stores may choose not to engage in certain, otherwise legal, activities.

“We still do the best we can to control the sale of liquor in our communities, but the closure of some of our stores in surrounding communities due to privatization reduced our control,” Buysse says. “MMBA was formed to be the legislative, marketing and promotional arm of our Minnesota liquor stores.”

In Minnesota, there are 210 cities with off-sale or on-sale/off-sale combination municipal liquor operations, operating 242 facilities. Sales range from approximately $120,000 to over $14 million per year. Total annual sales are approximately $300 million, with total annual profits of approximately $20 million. And profits are used by cities for general fund activities or special projects including recreation programs, elderly transportation and public safety equipment.

“Our role varies in the communities we serve,” Buysee says. “Some of our on-sales serve as the only community meeting point, while other cities have multiple big box locations.”

MMBA is the preeminent marketing, promotional and legislative resource for its member locations. The association also serves as intermediary between its retail locations and suppliers.

“We routinely advise our members on best practices and our members interact with each other to discuss ways to improve their individual stores and the organization as a whole,” Buysse says.  “We routinely communicate with Minnesota Alcohol, Gaming Enforcement (A.G.E.) and have had them speak at our regional meetings. Our mission is to provide our members with the tools to survive and flourish in an ever-changing retail marketplace.”

Legislative Activity

The MMBA and its constituents pay close attention to the legislative activities within the state of Minnesota that could impact the municipal liquor operations. In fact, one of the association’s core missions is, as an individual organization, to promote and introduce legislation, which is specifically beneficial to municipal liquor operations. In addition, the association works to oppose or potentially change legislation that may not be in the best interests of municipal liquor operations (and the overall retail liquor industry).

“Legislators need to be educated about our industry – about how we sell a controlled substance, not a commodity similar to laundry detergent,” Buysse says. “Many of our industry partners at a national level have seemingly conflicting agendas and we must advise our members of potential changes being legislated in other markets that may eventually effect us. NABCA is the business model that most closely models our municipal liquor association.”

Communication Is Key

The MMBA offers a wealth of programs, consultation services and publications that are intended to educate and inform members about the important topics and issues pertaining to running a successful municipal liquor business.

The association works closely with members to evaluate all aspects of their operations and offer insights and advice as to how to improve their processes.

Each May, the MMBA also hosts an annual three-day conference, which includes educational seminars and business meetings. The association’s regional meetings include half-day annual events in six locations across the state of Minnesota that cover a wide variety of operational and legislative issues. The organization’s two-day “boot camp” also is a popular annual event, covering the basics of municipal liquor operations including pricing, inventory control, merchandising and promotions.

Christopher Arnold, liquor operations manager at Bagley Municipal Liquor (and an MMBA Director) says members are determined to help each other succeed and are eager to share information. They take a personal interest in the success of their businesses and the municipal beverage industry at large.

As Arnold explains, one thing MMBA offers is consulting for free to any municipality. This entails MMBA directors helping store operators look at their business and correct any issues.

“A big part of being on the board is us being able to go out and help other liquor stores,” Arnold says. “We offer any help that they need to grow their business. This is a big emphasis of ours. For example, right now I’m consulting with a store that is having some computer issues and software problems. They asked if we can come in and help, so we spent a few days down there and got them turned around. As a municipal, one of our driving forces is the goal of generating revenue for our community, so it follows that we help everyone out.”

Embracing Challenges

As Paul Kaspszak, executive director of MMBA explains, off-sale municipal liquor operations have geographic exclusivity but not competitive exclusivity. In other words, government stores compete against private businesses right down the road. This competition has caused municipal liquor operations to become more business-savvy, with the goal of encouraging customers to purchase at the municipal liquor operation, instead of somewhere else.

“In today’s market, municipal liquor is about maintaining a balance of control and making money for the community, so we say that we have two purposes—control the sale of alcohol, while simultaneously generating income for community,” Kaspszak says. “The balance for each individual city is somewhat higher. There are some cities that need the money to reduce property taxes and pay for special projects.”

And while municipal owned-and-operated entities help control the sale of alcohol, there are key challenges involved in this. As Kaspszak explains, “controlling the sale of alcohol is different than ‘responsible service.’ All alcohol sellers should serve responsibly by not selling to underage people or intoxicated individuals. It’s about staying true to the community’s morals.”

For example, while it is legal for a municipal liquor operation to do a “2 for 1” just like a private operator can, MMBA discourages that practice because it promotes onsite consumption.

“We say if you are going to do that, do it as a price promotion,” Kaspszak says. “That’s control. Through that control aspect, we encourage members to do the pricing discount.”

In mid-2017, Minnesota Governor Mark Dayton signed into law Sunday liquor sales, ending its more than a 100-year-old ban of selling liquor on Sundays. Under the new law, liquor stores can now operate from 11 a.m. until 6 p.m. on Sunday, but cannot accept liquor deliveries. Municipalities are also able to restrict Sunday sales in their communities.

“Sunday sales was a big issue, a long campaign,” Arnold says. “My personal opinion was everything was fine the way it was. When it was passed I had to look at our store’s operation as a whole, as well as our surrounding competitors. We had to be open because we are on a four-lane highway and we have up to 10,000 vehicles a day passing our building. Our competitors were going to be open, so we had to be open. We opened a new facility four years ago, so we had to protect our payments and go the extra mile for our customers and our citizens.”

Kaspszak’s job is to help MMBA members succeed in whatever shape that takes.

“For a lot of trade associations, politics is the main focus. If the legislature went away that would be one less thing I have to deal with,” he says. “We are actively promoting and developing best practices and doing consultations for our members. We are always talking about markups and profits and inventory issues—things that the private sector should be talking about, but a lot keep it close to the vest. What we do is an open book. We actually have some private retailers who attend our events and call us for information about how to improve their operations.”

That’s what makes MMBA different. “We have had big box retailers, such as Total Wine, come to town and we have developed strategies and techniques available to all retailers that helps them to succeed against these entities,” Kaspszak adds. “It is information that we are sharing with everyone around the country.”

Future Trends

Kaspszak and his directors stress that sales have increased during the past decade, with the upward trend continuing throughout the state. To keep up with private enterprises, more “munis” are finding it necessary to remodel their establishments, expand their facilities, and even rename their businesses so they are less focused on the city name.

“The new generation and the way they want to buy and shop, will be something we need to address in the future,” Arnold says. “We are dealing with a controlled substance and we control the sale of alcohol in our community. We strive to check IDs and keep the alcohol out of the hands of the kids. The change in the manner of shopping puts some of it at risk. At some point we need to remember that this is a mood-altering substance that needs to be controlled, and we need to handle it that way.”

“As a trade association we are faced with new competition—you can either freak out or figure out how we are going to beat them,” Kaspszak says. “We want to tell people that we are providing a value and service to our community but we are really good business people. We talk about things that others simply don’t.”

For a long time, municipal liquor operations were looked at as places with high prices and poor service. But now things are changing.

“Over the past 15 years we have been trying to shift the balance back to let people know we are a municipal liquor operation and we are contributing to the community,” Kaspszak says. “And so we’ve taken the word ‘municipal’ out of what the city is naming their establishment. We found that, when we were looking at the private sector, people were missing that private sector part. We continue to stress that we are a community asset and that we contribute back to the community—all while competing with privatization.” •

 

Maura Keller is a Minneapolis-based writer and editor. She writes for dozens of publications on a variety of business-related topics. When not writing, Maura serves as executive director of the literacy nonprofit, Read Indeed.

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